What you need to know about the African Continental Free Trade Area

What you need to know about the African Continental Free Trade Area

What is the AfCFTA?

The African Continental Free Trade Area is an ambitious trade pact to form the world’s largest free trade area by connecting almost 1.3bn people across 54 African countries.

The agreement aims to create a single market for goods and services in order to deepen the economic integration of Africa. The trade area could have a combined gross domestic product of around $3.4 trillion, but achieving its full potential depends on significant policy reforms and trade facilitation measures across African signatory nations. 

The AfCFTA aims to reduce tariffs among members and covers policy areas such as trade facilitation and services, as well as regulatory measures such as sanitary standards and technical barriers to trade.

The agreement was brokered by the African Union (AU) and was signed by 44 of its 55 member states in Kigali, Rwanda on March 21, 2018. The only country still not to sign the agreement is Eritrea, which has a largely closed economy. 

As of 9 September 2021, 38 of the 54 signatories had deposited their instruments of ratification with the chair of the African Union Commission, according to the Tralac Trade Law Centre.

The AfCFTA Secretariat, an autonomous body within the African Union based in Accra, Ghana, and led by secretary general Wamkele Mene, is responsible for coordinating the implementation of the agreement.

African heads of state and government at the African Union Summit that saw the signing of the African Continental Free Trade Agreement in Kigali, Rwanda, on March 21, 2018. (Photo: STR / AFP)

Have negotiations on the AfCFTA been completed?

Trading under the agreement commenced on 1 January 2021, after a sixth month delay as a result of the impact of Covid-19. However, negotiations on many issues need to be resolved before the agreement can fully function. The negotiations have been divided into three phases:

  • Phase 1 negotiations – trade in goods and services. Negotiations led to the ratification of legal instruments (the AfCFTA agreement itself and protocols on trade in service and goods and settlement of disputes) that came into force on 30 May 2019, permitting the launch of trading. However, negotiations continue on many details (see below).
  • Phase 2 negotiations – intellectual property rights, investment and competition policy. Some of these negotiations have already begun.
  • Phase 3 negotiations – e-commerce. These negotiations are due to begin when phase 2 is complete.

Negotiations are under way to eliminate tariffs on 90% of goods over a five-year period (10 years for least developed countries, or LDCs). An additional 7% of tariff lines are deemed “sensitive”. Tariffs on these goods will be eliminated over a 10-year period (13 years for LDCs). A remaining 3% of tariff lines can be excluded from liberalisation, but the value of these goods cannot exceed 10% of total intra-African imports.

Negotiations on rules of origin have proved a sticking point: “While some countries are arguing for stringent rules of origin to ensure that preference accrues only to members and is not deflected to non-members, others – generally the least developed countries with weaker productive capacities – advocate more flexible, pro-developmental rules that allow them to source inputs from the cheapest and most competitive locations,” explains Hippolyte Fofack in a recent article for the Journal of African Trade.

Why does Africa need the AfCFTA?

Trade integration across the African continent has long been limited by outdated border and transport infrastructure and a patchwork of differing regulations across dozens of markets. 

Governments have often erected trade barriers to defend their markets from regional competition, making it more expensive for countries to trade with near neighbours than countries much further afield. 

Intra-African exports were 16.6% of total exports in 2017, compared with 68.1% in Europe, 59.4% in Asia, 55% in America and 7% in Oceania, according to UNCTAD. Intra-African trade, defined as the average of intra-African exports and imports, was around 2% during the period 2015–17. 

The share of exports from Africa to the rest of the world ranged from 80% to 90% in 2000-17 – only Oceania had a higher export dependence on the rest of the world in that period.

What are the predicted economic benefits of the AfCFTA?

The World Bank estimates that by 2035, real income gains from full implementation of the agreement could be 7%, or nearly $450bn. By 2035, the volume of total exports would increase by almost 29% relative to business as usual. Intra-continental exports would increase by more than 81%, while exports to non-African countries would rise by 19%.

The Bank predicts that the agreement could contribute to lifting an additional 30m people from extreme poverty and 68m people from moderate poverty.

Yet the impact across countries will not be uniform. The World Bank says that at the very high end, countries like Côte d’Ivoire and Zimbabwe could see income gains of 14% each. At the low end, some – such as Madagascar, Malawi, and Mozambique – would see real income gains of only around 2%.

How will the AfCFTA work with existing regional trade areas?

According to an analysis by the World Bank, in the policy areas already covered by subregional preferential trade areas (PTAs), such as the Common Market for East and South Africa (COMESA), the East African Community (EAC), the Economic Community of West African States (ECOWAS), and the South African Development Community (SADC), the AfCFTA will offer a common regulatory framework, reducing market fragmentation created by different sets of rules. 

Secondly, the AfCFTA will be an opportunity to regulate policy areas important for economic integration that are often regulated in trade agreements but that so far have not been covered in most of Africa’s PTAs, which the Bank says “tend to be shallow”.

Credit: Africa.Business

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